European stock markets closed sharply lower yesterday, taking the euro with them as weak US and Chinese data dented confidence in the global economic outlook.
Lacklustre US jobs data, the US Federal Reserve’s decision to cut its growth forecasts and downbeat Chinese manufacturing figures all added to the gloomy tone, prompting investors to take cash off the table.
Greece’s debt crisis dragged on, with unions announcing a general strike to coincide with a Parliament vote on crunch budget measures next week which are essential to Athens getting fresh funding to cover its maturing debt.
London’s benchmark FTSE 100 index of top shares fell 1.71 per cent to 5,674.38 points. In Frankfurt, the DAX dropped 1.77 per cent to 7,149.44 points while in Paris the CAC 40 slid 2.16 per cent to 3,787.79 points. Other European markets also fell sharply.
On the foreign exchange market, the euro fell to $1.4178 in London deals from $1.4349 in New York late Wednesday, undermined by continued uncertainty over the Greek debt crisis as EU leaders held a summit in Brussels.
“It is unlikely that the Brussels meeting will bring any more details on financial aid to Athens,” Commerzbank analysts said in a statement.
“EU countries will wait for the parliament vote in Greece on (the latest) austerity measures and the (rescue) plan will be delivered at that moment but it will only delay the possibility of a default,” they said.
Meanwhile, new Greek Finance Minister Evangelos Venizelos said Greek holders of the country’s huge sovereign debt such as banks and social security funds were “available” to participate in a rollover to reduce payments pressure.
The minister was referring to a package along the lines of a deal on Romanian debt agreed in Vienna in 2009. Designed to reassure markets, private banks agreed to buy new government bonds to replace ones that matured.
Dealers said US Fed chairman Ben Bernanke’s subdued remarks on Wednesday were unwelcome in markets already nervous about what now looks like a sustained slowdown ahead.
The “sobering words from Mr Bernanke confirmed the fears of many in the market – the economic recovery remains fragile and there’s no further stimulus package coming along for the time being,” IG Index sales trader Yusuf Heusen said.
US initial jobless claims grew more than expected, rising to 429,000 in the week ending June 18, an increase of 9,000 and contrary to the expected fall. On Wednesday, the Fed slashed its US growth estimate for this year to 2.7-2.9 per cent from 3.1-3.3 per cent.
Meanwhile, growth in China’s manufacturing activity fell to an 11-month low in June as Beijing’s efforts to cool the red-hot economy continued to bite.
HSBC’s preliminary purchasing managers index fell to 50.1 in June from a final reading of 51.6 in May, showing the sector barely grew as authorities tightened restrictions on bank lending.
“Chinese factories barely expanded in June,” said City Index strategist Joshua Raymond.
“A slowdown in growth in China is a growing concern amongst investors, particularly those with exposures to commodities and resource equities.”
“Naturally therefore, we have seen a move by investors to downsize positions in the resource sector today, with the miners and oil firms the worst hit,” he added.
In New York, the blue-chip Dow Jones Industrial Average was down 1.13 per cent at around 1700 GMT, coming off early lows, while the tech-heavy Nasdaq Composite dropped 0.14 per cent
In Asian trade earlier yesterday, Tokyo lost 0.34 per cent, Hong Kong slipped 0.46 per cent, Sydney fell 0.71 per cent but Shanghai rose 1.47 per cent.